Q2 2024 UMB Financial Corp Earnings Call

Okay.

Jennifer: Good morning. Thank you for attending today's UMB Financial second quarter 2024 financial results call. My name is Jennifer, and I'll be your moderator today.

Jennifer: Good morning. Thank you for attending todays you MB Financial's second quarter 2024 financial results call. My name is Jennifer and I'll be your moderator today, all lines will be muted during the presentation portion of the call with an opportunity for questions and answers at the end. If you would like to ask a question press star one on your tell.

Phone keypad.

Jennifer: All lines will be muted during the presentation portion of the call with an opportunity for questions and answers at the end. If you would like to ask a question, press star one on your telephone keypad. I'd now like to turn the call over to Kay Gregory, UMB Investor Relations. Kay, please proceed.

Now like to turn the call over to Kay Gregory U N V Investor Relations.

Please proceed.

Kay Gregory: Good morning, and welcome to our second quarter 2024 call. Mariner Kemper, President and CEO, and Ram Shankar, CFO, will share a few comments about our results. Then we'll open up the call for questions. Jim Rhine, CEO of UMB Bank, and Tom Terry, Chief Credit Officer, will be available for the question and answer session.

Speaker Change: Good morning, and welcome to our second quarter 2024 call Mariner, Kemper, President and CEO and Ron <unk>, our CFO will share a few comments about our results then we'll open up the call for questions.

Speaker Change: Jim Rine, CEO of <unk> Bank, and Tom Carey, Chief Credit Officer will be available for the question and answer session.

Kay Gregory: Before we begin, let me remind you that today's presentation contains forward-looking statements, including the discussion of future financial and operating results, benefits, synergies, gains, and costs that the company expects to realize from the pending acquisition, as well as other opportunities management foresees. Forward-looking statements and any pro forma metrics are subject to assumptions, risks, and uncertainties as outlined in our SEC filings and summarized on slides 48 to 51 of Actual results may differ from those set forth in forward-looking statements, which speak only as of today. We undertake no obligation to update them except to the extent required by securities law. Presentations and materials are available online at investorrelations.umb.com.

Speaker Change: Before we begin let me remind you that today's presentation contains forward looking statements, including the discussion of future financial and operating results benefits synergy gains and cost.

Speaker Change: Do you expect to realize from the pending acquisition as well as other opportunities management foresees.

Speaker Change: Forward looking statements and any pro forma metrics are subject to assumptions risks and uncertainties as outlined in our SEC filings and summarized on slide 48 to 51 of our presentation.

Actual results may differ from those set forth in forward looking statements, which speak only as of today.

Speaker Change: We undertake no obligation to update them, except to the extent required by securities law.

Speaker Change: Presentation materials are available online at Investor Relations got you wouldn't be dot com and include reconciliations of non-GAAP financial measures.

Speaker Change: Now I'll turn the call over to Mariner Kemper.

Unknown Executive: Thank you, Kay, and good morning, everyone. Thanks for joining us as we discuss our great second quarter results announced yesterday afternoon. Our strong first quarter performance continued into the second quarter with net interest income growth driven by a growing balance sheet and net interest margin expansion along with solid credit metrics. We reported gap earnings of $101.3 million, or $2.07 per share, driven by continued momentum across our various lines of business. On an operating basis, we earned $105.9 million, or $2.16 per share. Balance sheet growth included a 7.7% leap quarter annualized increase in average loan balances led by commercial real estate and construction drops on previously approved lines.

Unknown Executive: Thank you Jay and good morning, everyone. Thanks for joining us as we discuss our great second quarter results announced yesterday afternoon. Our strong first quarter performance continued into the second quarter with net interest income growth driven by growing balance sheet and net interest margin expansion along with solid credit metrics.

Unknown Executive: We reported GAAP earnings of $101 3 million or $2 <unk> per share driven by continued momentum across our various lines of business on an operating basis, we earned $109 million or $2 16 per share balance sheet growth included a seven 7% linked quarter annualized increase.

Unknown Executive: And average loan balances led by commercial real estate and construction draws on previously approved loans. Additionally, average card balances increased 26, 1% assisted by the full quarter impact of our co brand card portfolio, we acquired in March.

Unknown Executive: Additionally, average card balances increased 26.1%, assisted by the full quarter impact of our co-brand card portfolio we acquired in March. Top line loan production was $926 million for the quarter. Payoffs and paydowns, which are difficult to predict, were 3.7% of balances.

Unknown Executive: Top line loan production was $926 million for the quarter payoffs and Paydowns, which are difficult to predict or three 7% of balances. This is a slight increase from prior quarter, but in line with our historic averages.

Unknown Executive: This is a slight increase from the prior quarter but in line with our historic average. Credit quality in our loan portfolio remains excellent. Net charge-offs were, again, just five basis points of average loans for the quarter, and non-performing loans fell to a meager six basis points of total loans. Over the past eight quarters, our non-performing ratio has averaged eight basis points compared to 39 basis points for our peer group and 35 basis points for the industry as a whole.

Unknown Executive: Credit quality in our loan portfolio remains excellent with net charge offs were again, just five basis points of average loans for the quarter and nonperforming loans fell to a meager six basis points of total loans.

Unknown Executive: Over the past eight quarters, our nonperforming ratio has averaged eight basis points compared to 39 basis points for our peer group and 35 basis points for the industry as a whole.

Unknown Executive: Credit cards drove the small amount of charge-offs we saw in the quarter, while we had a net recovery in both C&I and specialty lending. In fact, C&I has posted net recoveries in four of the last five quarters. Asset quality has been very strong in our investment real estate portfolio. Since 2016, we charged up less than $1 million cumulatively, which can be attributed to just three loans.

Unknown Executive: Credit cards drove the small amount of charge offs, we saw in the quarter, while we had a net recovery in both C&I and specialty lending in fact, C&I has posted net recoveries in four of the last five quarters.

Unknown Executive: Asset quality has been very strong and our investment real estate portfolio. Since 2016, we charged off less than 1 million cumulative.

Unknown Executive: Which can be attributed to just three loans.

Unknown Executive: Provisions of $14.1 million reflect the continued loan growth along with the impact of a recalibration of our model. As a result, our coverage ratio increased three basis points to 0.99% of total loss. Average total deposits grew $815 million or 9.7% on a linked order analyzed basis, including the intentional reduction of brokered CD balances and the expected seasonal decline in public funds. For comparison, Pearson reported a median annualized increase of just 4.5% for the second quarter.

Unknown Executive: Provision of $14 1 million reflect the continued loan growth along with the impact of a recalibration of our models.

Unknown Executive: Our coverage ratio increased three basis points to 99% of total loans.

Unknown Executive: Average total deposits grew $815 million or nine 7% on a linked quarter annualized basis, including the intentional reduction of brokered CD balances and the expected seasonal decline in public funds.

Unknown Executive: For comparison, here's the reported a median annualized increase of just four 5% for the second quarter.

Unknown Executive: Deposit growth in the quarter highlights our strong diversified funding profile with growth coming from nearly all lines of business. On the consumer front, we've had good success with private banking and retail money market promotion, with targeted marketing investments made in the first half of the year. Excluding broker CDs, average client deposits increased approximately 1.3 billion from the last quarter. In fact, since the turmoil of last spring, our deposits, excluding broker CDs, have increased by $4.2 billion, or 14%, in the second quarter of 2023. Ram will share a more detailed look at these and other quarterly drivers shortly.

Speaker Change: Deposit growth in the quarter highlights our strong diversified funding profile with growth coming from nearly all lines of business on the consumer front. We've had good success from private banking and retail money market promotions with targeted marketing investments made in the first half of the year.

Speaker Change: Excluding brokered Cds average client deposits increased approximately $1 3 billion from the last quarter. In fact since the turmoil is last spring our deposits excluding brokered Cds have increased by $4 2 billion or 14% over the second quarter of 2023.

Speaker Change: Ron will share a more detailed look at these and other quarterly drivers shortly.

Unknown Executive: Finally, we remain excited about our pending acquisition of Heartland Financial and have shared a few updates in the deck. While it's early in the process, we've outlined milestones and progress in the integration planning. Our focus is to ensure a seamless transition without disrupting business as usual activities. The establishment of an integration team allows our customer-facing associates to remain focused on serving the customer and generating growth. Again, we believe this transaction will accelerate UMB's growth strategy, further diversifying and de-risking our business model.

Ron: Finally, we remain excited about our pending acquisition of Heartland financial and have shared a few updates on the deck well. It's early in the process, we've outlined milestones and progress in the integration planning.

Ron: Our focus is to ensure a seamless transition without disrupting business as usual activities. The establishment of an integration team allows our customer facing associates to remain focused on serving the customer and generating growth.

Ron: Again, we believe this transaction will accelerate <unk> growth strategy further diversifying and Derisking our business model. The addition of this high quality franchise is a great fit from a strategic financial and cultural perspective, and we look forward to capitalizing on the many opportunities we see as a combined company.

Unknown Executive: The addition of this high-quality franchise is a great fit from a strategic, financial, and cultural perspective, and we look forward to capitalizing on the many opportunities we see at the combined company in 2025 and beyond. Now, I'll turn it over to Ram.

Ron: In 2025 and beyond.

Ron: Now I'll turn it over to Ron.

Ram Shankar: Thanks, Maynard. Net interest income of $245.1 million represented an increase of $5.7 million, or 2.4%, reflecting continued loan growth and higher levels of liquidity. Net interest margin increased three basis points on a link quarter basis to 2.51%, outperforming the expectations I shared previously in large part due to a stronger than expected DDA value. The increase was driven by the positive impact of seven basis points from loan repricing and mix, two basis points from the securities portfolio, one basis point from the level of free funds, and two basis points related to various smaller items. These were partially offset by a nine basis point reduction from higher deposit pricing driven by the mixed chain.

Ron: Thanks, Mariner net interest income of $245 1 million represented an increase of $5 7 million or two 4%, reflecting continued loan growth and higher levels of liquidity net.

Ron: Net interest margin increased three basis points on a linked quarter basis to $2 five 1% outpacing the expectations I shared previously in large part due to stronger than expected DDA balances.

Ron: The increase was driven by the positive impact of seven basis points from loan repricing and mix two basis points from the securities portfolio, one basis points from the level of free funds and two basis points related to various smaller items. These were partially offset by a nine basis point reduction from higher deposit pricing.

Ron: Driven by mix changes.

Ram Shankar: The Cycle of the Day betas on Total Deposits and on Loan Yields are 53% and 63%, respectively, and continue to track closely to our expectations for terminal betas. Looking into the third quarter, with the prospect of a Fed rate cut in September, we would expect our net interest margin to be relatively stable to the second quarter level. Approximately 31% of our total deposits are hard indexed to short-term interest rates. As the fed funds rate changes, these deposits reprice down immediately.

Ron: Thank you good day beta on total deposits and our loan yields or 53% and 63%, respectively and continuing to track closely to our expectations for terminal betas.

Ron: Looking into the third quarter with the prospect of a fed rate cut in September we would expect our net interest margin to be relatively stable to second quarter levels, approximately 31% of our total deposits.

Ron: Index to short term interest rates as the fed funds rate changes these deposits reprice down immediately.

Ram Shankar: An additional 17% of our total deposits are what we call soft indexed, or balances negotiated at current prevailing market rates. On these soft indexed deposits, we would expect to move deposit rates down pretty quickly following any rate. Overall, we expect our deposit betas on the way down to be immediate and steeper than peer banks, similar to our experience during this past tightening cycle.

Ron: An additional 17% of our total deposits are what we call soft index or balance was negotiated at current prevailing market rates on these soft indexed deposits, we would expect to move deposit rates down pretty quickly following any rate cuts overall, we expect our deposit beta on the way down to be immediate and steeper.

Ron: Peer banks similar to our experience during this past tightening cycle.

Ram Shankar: Coupled with favorable reinvestment of cash flows from the securities book and repricing of some loans that agree to be yielded are interest rate simulation results shown on page 33 of our deck, which shows us benefiting from interest rate cuts in year one with fairly neutral implications for year two. As a reminder, this analysis does not include any interest income generated from new growth or the Heartland acquisition. At this preliminary stage, we estimate that our pro forma interest rate position will remain relatively neutral.

Ron: Coupled with favorable reinvestment of cash flows from the Securities book and repricing of some loans at accretive yields our interest rate simulation results shown on page 33 of our deck shows us benefiting from interest rate cuts in Europe.

Ron: With fairly neutral implications for year or two.

Speaker Change: As a reminder, this analysis does not include any interest income generated from new growth or the Heartland acquisition at this preliminary stage, we estimate that our pro forma interest rate position will remain relatively neutral.

Ram Shankar: Details and activity in our securities portfolio are shown on slides 30 and 31 in our deck. The combined AFS and HCM portfolios averaged $12.2 billion during the quarter, a decrease of $2.3. We continue to purchase mortgage-backed securities and agencies, while, as noted, security levels fluctuate based on our collateral needs for both public funds and trust deposits. The average purchase yield in our portfolio was 4.99% for the quarter, while securities rolling off had a yield of 2.67%.

Speaker Change: Details and activity in our securities portfolio are shown on slides 30, and 31 and our debt to.

Speaker Change: The combined.

Speaker Change: <unk> and HTM portfolios averaged $12 $2 billion during the quarter a decrease of two 3%.

Speaker Change: We continued to purchase mortgage backed securities and agency, while I've loaded security levels fluctuate based on our collateral needs for both public funds and trust deposits.

Speaker Change: The average purchase yield in our portfolio was 499% for the quarter, while securities Rolling off had a yield of 267%, we expect $144 billion of securities with a yield of 254% to roll off over the next 12 months.

Ram Shankar: We expect $1.4 billion of securities with a yield of 2.54% to roll off over the next 12 months. Capital levels continued to build, with our common equity tier one capital increasing to 11.14% and continued growth in tangible book values, which increased by $1.57 from March 31 to $60.58. Tangible book value per share has grown 15.3% over the past year. As previously described in our Forward Purchase Agreement, our regulatory capital ratios do not include the $230 million Forward Equity Offering Agreement that we announced in April.

Speaker Change: Capital levels continue to build with our common equity tier one capital increasing to 11, 1% and 4% and continued growth in tangible book value, which increased by $1 57 for March 31 to $60 58.

Speaker Change: Tangible book value per share has grown 15, 3% over the past year.

Speaker Change: I've previously describing our forward purchase agreement our regulatory capital ratios do not include the $230 million forward equity offering agreement that we announced in April.

Ram Shankar: Turning back to the income statement, non-interest income was $144.9 million, a link order reduction of 9%, largely due to a few non-recurring items in the prior quarter. These first quarter benefits included $8.6 million in net gains on equity position, a $4 million legal settlement, and $1.8 million in gains on the sale of land. Momentum in our fee business has continued, with fund services assets under administration growing to $460 billion, an increase of 20% from June 30, 2023. In private wealth, our teams have brought in $781 million in net new assets year-to-date, ahead of full-year 2023 levels.

Speaker Change: Turning back to the income statement non interest income was $144 9 million are linked quarter reduction of 9% largely due to a few nonrecurring items in the prior quarter. This first quarter benefit included $8 6 million in net gains on equity position.

Speaker Change: 4 million legal settlement and a $1 8 million in gains on the sale of land.

Speaker Change: Momentum in our fee businesses continued with fund services assets under administration growing to 460 billion, an increase of 20% from June 32023.

Speaker Change: In private wealth. Our teams have brought in 781 million in net new assets year to date ahead of full year 2023 levels and.

Operator: And credit and debit card spending, including from our newly acquired retail co-brand portfolio, reached $4.7 billion in the second quarter, up from $4 billion a year ago. Non-interest expense of $249.1 million for the quarter included pre-tax acquisition expenses of $9.6 million and a reduction of $3.8 million in previously approved FDIC special assessment charges. On an operating basis, non-interest expense increased $2 million in the link order and included higher processing fees related to higher software subscription costs and various software projects, along with increased bank card expense.

Speaker Change: In credit and debit card spending including from our newly acquired the retail co brand portfolio reached $4 7 billion in the second quarter up from $4 billion a year ago.

Speaker Change: Noninterest expense of $249 1 million for the quarter included pre tax acquisition expenses of $9 6 million and a reduction of $3 8 million in previously accrued FDIC special assessment charges.

Speaker Change: On an operating basis noninterest expense increased $2 million linked quarter and included higher processing fees related to higher software subscription costs at various software projects.

Speaker Change: Along with increased bankcard expense.

Operator: Within salaries and benefits expense, typical seasonal reductions in FICA and 401k costs, along with the decrease in deferred compensation expense, were partially offset by increased bonus and salary expense related to the timing of merit increases and higher bonus accruals for 2024 year-to-date performance. Excluding the one-time items and seasonal variances, our core expense run rate in the second quarter was approximately $240 million. Finally, our effective tax rate was 20.1% for the quarter compared to 18.1% in the second quarter of 2023.

Speaker Change: Within salaries and benefits expense typical seasonal reductions in FICA and 401K costs, along with a decrease in deferred compensation expense was partially offset by increased bonus and salary expense related to the timing of merit increases and higher bonus accruals for 2024 year to date performance.

Speaker Change: <unk>.

Speaker Change: Excluding the one time items and seasonal variances, our core expense run rate in the second quarter with approximately $240 million.

Speaker Change: Finally, our effective tax rate was 21% for the quarter compared to 18, 1% in the second quarter of 2023.

Operator: The year-over-year increase was primarily related to lower income on tax-exempt securities and a decrease in tax benefits from stock compensation. For the full year 2024, we would expect a tax rate between 17 and 19 percent. Now, I'll turn it over to the operator for the Q&A portion of the call.

Speaker Change: The year over year increase was primarily related to lower income on tax exempt securities and a decrease in tax benefit from stock compensation.

Speaker Change: For the full year 2024, we would expect the tax rate between 17 and 19%.

Speaker Change: Now I'll turn it over to the operator for the Q&A portion of the call.

Operator: Thank you. We will now begin the question and answer session. If you would like to ask a question, please press star followed by one on your telephone keypad. If your question has been answered or you wish to remove your question, please press star followed by two. Again, to ask a question, press star one. As a reminder, if you are using a speakerphone, please pick up your handset before asking your question. We will pause here briefly as questions are registered. Our first question comes from the line of Jared Shaw with Barclays. Jared, your line is now open.

Speaker Change: Thank you we will now begin the question and answer session. If you would like to ask a question. Please press star followed by one on your telephone keypad with your question has been answered or you risk term as your question. Please press star followed by two.

Speaker Change: To ask a question press Star one as a reminder, if you are using a speakerphone. Please pick up your handset before asking your question. We will talk to you briefly ask questions are registered.

Speaker Change: Our first question comes from the line of Jared Shaw with Barclays. Sir Your line is now open.

Jared David Wesley Shaw: Hey, good morning.

Jared: Good morning Jared.

Jared David Wesley Shaw: Morning. So maybe just to start on the pending acquisition and, you know, any potential restructuring or changes we should expect heading into closing. I'm sort of thinking around, you know, the level of brokered deposits given your good loan to deposit ratio, any securities restructurings that you anticipate either UMBF or Heartland doing, you know, just as we go into closing on any change that we should be thinking about.

Jared David Wesley Shaw: Alright, so maybe just starting to start on the pending acquisition and.

Jared David Wesley Shaw: Any any potential restructuring or changes, we should expect heading into closing I'm sort of thinking around level of brokered.

Speaker Change: Broker deposits given your your good loan to deposit ratio any securities restructurings.

Speaker Change: That you anticipate either of you on behalf for Heartland doing.

Speaker Change: Just as we as we go into closing any any change that we should be thinking about.

Unknown Executive: I'll let Ram take that. I mean, obviously, we can't give you much in the way of guidance there, but Ram can give some color. Yeah, I'll point out what we did in the most recent quarter, our brokered CDs and flub advances on one of our pages in our investor deck. We have the rolling maturities on page 34 of remaining flubs brokered and the BTFP program. So other than carefully evaluating them when they come up for renewal, our immediate bias based on our loan to deposit ratio and our liquidity levels is to let them run off. So that's on our side. We don't expect any asset-side restructuring on the investment portfolio in our book, so we give no specific guidance on what Heartland might do. But for us, other than paying,

Rob: I'll, let Rob take that I mean, obviously, we can't give you much in the way of guidance there, but Robert can give some color, yes, I'll point out what we did in the most recent quarter on broker Cds and club advances on one of our pages in our investor deck, we have rolling maturities on page 34 of <unk>.

Speaker Change: Remaining plus brokered on the <unk>.

Robert: PTSD program, so other that carefully evaluating them when they come up for renewal or intermediate bias based on our loan to deposit ratio and our liquidity levels is probably let them run off.

Rob: So that's on our side, we don't expect any asset side restructuring on the investment portfolio on our books.

Robert: So no specific guidance on what heartland might do but for us other than paying down those excess liquidity that we have that's nothing that we're contemplating.

Garrett: Complaining Garrett.

Jared David Wesley Shaw: Okay, and then as we look at that potential runoff there, should we just assume that, you know, what the cash drifts lower that securities, you know, maybe you just use the cash flow from that to

Speaker Change: Okay and then.

Garrett: As we look at that potential run off there should we just assume that.

Speaker Change: What the cash drifts lower that securities. Maybe you just you see the cash flow from that too.

Speaker Change: To reduce.

Jared David Wesley Shaw: Yeah, generally, we expect the portfolio, the bond portfolio, to be relatively stable. But yeah, the excess cash might come down just because, again, you know, given our loan-to-deposit ratio in the mid-60s, we can let it, let these deposits go. And obviously, as you see on page 34, these are some of our higher-cost deposits or borrowings as well.

Speaker Change: Yes, generally we expect the portfolio of the bond portfolio to be relatively stable.

Speaker Change: But yes, the excess cash might come down just because again, given our loan to deposit ratio in the mid <unk>, we get let it let these deposits go and obviously as you see on page 34. These are some of our higher cost deposits or borrowings as well yes.

Jared David Wesley Shaw: Yep, yep, OK, and then on the DDA's, you know, I know obviously each quarter you have some some flex or some fluctuations with end of period balances. Any color you can give on trajectory or expectation on DDA, whether it's end of period or average as we go through the rest of the year?

Speaker Change: Yeah, Okay, and then on the on the <unk> I know obviously each quarter you have some some flex there are some.

Robert: Fluctuations with with end of period balances any.

Speaker Change: Any color you can give on sort of trajectory of your expectation on DDA, whether it's end of period or average as we go through the rest of the year.

Unknown Executive: It's probably not much different from the comments we've made in the past, which is that we feel like we're at the bottom of the rotation cycle. You know, we can't predict that really more than give you a backward looking feeling. And at the end of the day, the way that we come up with the feeling that we're close to the bottom of that rotation is the fact that it's pretty clear that rates aren't going up from here.

Speaker Change: It's probably not much different than the comments, we've made in the past, which is that we feel like we're at the bottom of the rotation cycle, we can't predict that really more than a.

Robert: Backward looking feelings and at the end of the day the way that we come up with feeling that we're close to the bottom of that rotation is the fee.

Robert: Fact that it's pretty clear that rates aren't going up from here. So.

Unknown Executive: So, we feel like with our book, most of the rotation took place and took place early in the cycle, as we talked about from the beginning of the cycle, that we would go through it first. So, on a relative basis against our peers, we believe we're probably through with most of that rotation, as long as rates look to be going where we all believe them to be going.

Robert: And we feel like with our book most of the rotation took place took place early in the cycle as we talked about from the beginning of the cycle that we would go through it first so.

Robert: On a relative basis against our peers, we believe we're probably through with most of that rotation.

Robert: As long as rates look to be going where we all believe them to be going.

Ram Shankar: And I would ignore the end-of-period BDA balances, like I always say, right? There's a lot of volatility at quarter end, month end, depending on the client and their client activities, so I would not index yourself too much to end-of-period balances.

Speaker Change: And I would ignore the end of period DDA balances like I saw I always say right and there's a lot of volatility at quarter end month, and depending on client and verifying activities. So I would not <unk>.

Robert: Index yourself too much to end of period balances, though it does help us make money right.

Unknown Executive: So it does help us make more money, right? I mean, it's a mushroom.

Unknown Executive: At the end of the quarter, we make money on that. It happens typically at the end of almost every month, it seems.

Robert: Mushroomed kind of the quarter, we make money on that as it happens typically at the end of almost every month it seems.

Jared David Wesley Shaw: Okay, but do you think we could be at a point where we start seeing growth in average, or will we continue to see growth from this quarter in average CDS?

Speaker Change: Okay. So you think we could be at a point, where we start seeing growth in average.

Robert: Continue to see growth from this quarter and average Tds.

Unknown Executive: I mean, we that that's hard to predict. I would say that it's just hard to predict whether it's going to grow or not, just based on sales activities and our ability to bring in new business, which we own, we don't forecast.

Speaker Change: I mean.

Speaker Change: That's it's hard to predict.

Robert: I would say that.

Robert: That's just hard to predict whether it's going to grow or not at this stage. That's based on sales activities and our ability to bring in new business, which we aren't we don't <unk>.

Robert: Forecast.

Robert: Okay.

Jared David Wesley Shaw: Alright, thanks. And then just finally, for me on asset quality, you know, asset quality is great. I was wondering what happened within Criticizing Classified in the quarter, and then you referenced a model change for CECL. Is that just using a different sort of Moody's baseline, or what do I guess drove the model change there? So Tom will take the first question; we'll turn the second part of that over to you. Yeah, our criticized and classified loans are

Speaker Change: Alright, Thanks, and then just finally for me on asset quality asset quality is great I was wondering what happened within Chris.

Speaker Change: Criticized and classified in the quarter and then you referenced the model change for seasonal.

Speaker Change: Is that just using a different sort of moody's baseline or.

Speaker Change: But I guess what drove the model change there.

Thomas S. Terry: So Tom will take the first question, and we'll turn the second part of that over to Ram.

Speaker Change: So Tom will take the first question I will turn the second part of that overall, yes.

Tom: Our criticized and classified loans were basically flat quarter over quarter, you always have a little bit of overlap between.

Tom: <unk> past watch, which actually was down but thats a pass part of our watch list, but the criticized was flat.

Ram Shankar: Yeah, on the second question about CECL, we did not change our baseline assumptions; we're still 100% indexed to Moody's baseline. You know, from time to time, we look at our CECL models for performance, for effectiveness, and change and swap out macroeconomic variables, drivers, and correlations. So as part of that, we tweaked a couple of our models just to, you know, get a higher provision, get to 99 basis points coverage ratio.

Speaker Change: On the second question about seasonal we did not change our baseline assumptions, we're still 100% index to Moody's baseline from time to time, we look at our seasonal models for performance for our effectiveness in change in and swap out macroeconomic variables drivers correlations. So that's part of that we've tweaked a couple.

Tom: All of our models just to.

Tom: No.

Tom: Get a higher provision get to 99 basis points coverage ratio I mean, all in all on that front, we just take a conservative.

Unknown Executive: I mean, all in all, on that front, we just take a conservative approach. We feel like it's right. It's the kind of organization we are. And we believe in a You know, conservative, strong, healthy, reserved, and the important part of both your questions, underlying questions is that the excess provision was not because of underlying portfolio trends. It was all quantitative.

Tom: Approach, we feel like it's right kind of organization we are in.

Speaker Change: We believe in a.

Speaker Change: Conservatives strong healthy reserve and important part of both of your questions underlying questions.

Speaker Change: <unk> in excess provision was not because of underlying portfolio trends. It was all quantitatively driven based on changes to seasonal models and loan growth.

Unknown Executive: and Lone Girls. And I would just say, just to echo what Tom said related to those things, our books really never looked better. You know, we talked about Criticized being flat, it's also meager, you know, six pages, 20 pages. I mean, it hardly exists, and then the charge-offs are what they are. We feel very good about how we manage the company. It's the same team, we've been doing the same thing for a long time, we take it very seriously, and we're real proud of it.

Speaker Change: And I would just say just to echo what Tom said related to those things are our books really never looked better.

Speaker Change: Talk about criticize being flat. It's also meager six basis points I mean is it hardly exists and then the charge offs are what they are.

Speaker Change: I feel very good about how we manage the company at the same team doing the same thing for a long time will take it very seriously and we're real proud of it.

Speaker Change: Great. Thanks for all that color.

Darren: Thanks Darren.

Operator: Thank you. Our next question comes from the line of Chris McGratty with KBW. Chris, your line is now open.

Speaker Change: Thank you. Our next question comes from the line of Chris Mcgratty with <unk>, Chris Your line is now open.

Operator: Oh, good morning. Rob, maybe come back to the margin. How are you?

Tom: Yeah.

Tom: Okay.

Tom: Rob maybe coming back to the margin.

Christopher McGratty: Just come back to the margin for a second. You guys are, you know, two and a half. Heartland's margin looks roughly the same as the last quarter, about 100 basis points higher. With the bond restructuring from them and the accretion, I mean, you should be I'm trying to get a sense of like performer margins. So any comment there would be helpful given, you know, you've talked about, you know, relative neutrality on

Christopher McGratty: Just coming back to the margin for a second you guys or two and a half heartlands margin looks roughly as of last quarter about 100 basis points higher.

Speaker Change: With the bond restructuring from them and the accretion I mean.

Speaker Change: You should be I'm trying to get a sense of like pro forma margins.

Speaker Change: Comment there would be.

Speaker Change: Helpful. Given you've talked about you know relative neutrality.

Speaker Change: Jim.

Ram Shankar: Yeah, that's a tough question for me to answer just sitting here. I mean, as you know, it really depends on what the portfolio marks on acquisition day, whatever that is, happens, right? So there's going to be a lot of noise related to how that accretes into income. So I mean, you can do simple math based on taking their, whatever, 373 margin and our 252 margin on our earning assets and get to a number, but there's going to be a lot more noise because of purchase accounting adjustments. So it's really hard for us to sit here.

Jim: Yes, that's a tough question for me to answer just sitting here I mean, I do know right. It really depends on what the portfolio marks on the acquisition date whenever that is happening right. So theres going to be a lot of noise related to how that accrete into income. So you can do a simple math based on taking their whatever $3 73 margin in our $2 52.

Speaker Change: Margin on our earning assets and get to a number but it's going to be a lot more noise because of perks.

Speaker Change: Purchase accounting adjustments, so it's really hard for us to sit here, obviously, they're still running their book and it really depends on what happens to deposit betas and how we manage it after close so yeah I.

Unknown Executive: Obviously, you know, they're still running their book and it really depends on what happens to deposit data and how we manage it after close. So I feel like it's too early to kind of give you a pro forma look at margin other than the comments that I said that, relatively, we should be neutral from an interest rate position on a pro forma basis. I mean, in the longer term, it's one of the reasons we're doing the transaction, right?

Speaker Change: I feel like it's too early to kind of give you a pro forma look at margin other than the comments that I said that relatively we should be.

Speaker Change: Neutral from an interest rate position on a pro forma basis, I mean longer term. It's one of the reasons, we're doing the transaction right I mean, they do have.

Unknown Executive: I mean, they do have a better margin tied to having a smaller business book of loans, which carries a higher yield. They have a more granular deposit base. So the combination of the way they run their business, longer term, taking the accounting noise of the marks and all that is part of the reason we're doing the transaction.

Speaker Change: A better margin tied to having a smaller business booking loans, which carries a higher yield they had a more granular deposit base.

Speaker Change: Combination of whether they run their business longer term, taking the accounting noise.

Speaker Change: Mark and all of that is part of the reason we're doing the transaction so longer term, we expect that.

Christopher McGratty: Okay, in terms of just broader efficiency, I mean, the objective, and you've accomplished it over the years, is operating leverage. If I think about the bank, you know, you've been running kind of low, low 60s. It would feel given the given that momentum, you know, mid 50s would seem, you know, once you get everything accreted and integrated, that would be reasonable. But draining what we're missing in terms of investments. Now that you're through with Glasscore, you talked about the investments you're making to go through 50. But any other guidance as we look out over the next couple years?

Speaker Change: Okay.

Speaker Change: And in terms of just broader efficiency.

Speaker Change: The objective you've accomplished over the years is operating leverage.

Speaker Change: If I think about the bank, you've been running kind of low low sixties.

Speaker Change: It would feel given the given that momentum mid fifty's would seem once you get everything and accreted and integrated that would be reasonable but is there anything we're missing in terms of investments now that Youre through Inc. Last quarter, you talked about the investments youre, making to go through 50, but any other guidance.

Speaker Change: Over the next couple of years.

Unknown Executive: Uh, you know, I think we remain, I'm probably not going to give you what you're looking for here. But where we remain as focused on being efficient as we have been, there's always more work to do. I think the combination of our two companies will make us that much stronger. I would say again, Overall, it is more operating leverage than efficiency.

Speaker Change: I mean, I think we remain.

Speaker Change: Probably not going to give you what you're looking for here, but we remain focused on being efficient.

Speaker Change #107: As we have been there is always more work to do I think the combination of our two companies will make us that much stronger.

Speaker Change: I would say again just.

Speaker Change: Overall, it is more operating leverage and efficiencies. So I think the room for us the opportunity for US is to focus more on revenue than it is expense reduction.

Unknown Executive: So I think the room for us, the opportunity for us is to focus more on revenue than on expense reduction. You know, we've done a lot of that efficiency work to make our systems modernized. We've said in comments before that, you know, we push a big bowling ball through at the front end of the pandemic. We push a big bowling ball through Python, right, to get our systems up and ready and modernized.

Speaker Change: You've done a lot of that efficiency work to make our systems modernized.

Speaker Change: Said comments before that.

Speaker Change: We push our big bowling ball through at the front end of the of the pen.

Tom: And then we pushed up the ball involved through the Python right to get our systems up and ready and modernized and we are more focused today on.

Unknown Executive: And we are more focused today on. Spending is focused on the customer experience, so more than 50% of our spend is focused there. So that should benefit both revenue and retention of clients and all of that, but in general, I would say I think our opportunity is on the revenue front, and we're good at that. And I think the exciting thing about the Harlan transaction is we'll be able to take their great small business platform and layer our institutional and our CNI on top of it. And as you're aware, the way we've modeled all that, there are no representative synergies in what we produce publicly.

Tom: Spin.

Tom: And that focus on customer experience.

Tom: More than 50% of our spend is focused there so.

Speaker Change: That should benefit both revenue and retention of clients and all of that but in general I would say I think our opportunities on the revenue front and we're good at that and I think the exciting thing about the heartland transaction it will be able to take their great small business platform and layer, our institutional and our C&I on top of their branch.

Speaker Change #100: Work and their footprint and as Youre aware in the way we modeled all of that there are no revenue synergies and what we've produced publicly so that's.

Unknown Executive: So that's all upside and gravy and yet to be seen. So we're very excited about that. And again, I just re-echo that if you're thinking about operating leverage, our opportunity is more on the revenue side than it is.

Tom: That's all upside gravy and yet to be.

Speaker Change: You've seen so we're very excited about that and again I'd just echo that.

Speaker Change: Thinking about operating leverage or opportunity is more on the revenue side than a success.

Christopher McGratty: Great. And then if I could just one more round on the deposit costs, quarter on quarter change, any particular I heard your prepared remarks about the index deposits, but any particular product that drove the increase? I know there's been some questions from some of the larger banks about sweep deposits, but any impact from that, or any one category call out on driving the cost? And no, the increase in cost on a quarterly report basis is the pipeline of institutional deposits that we've talked about for the last couple of quarters. So the timing of those came came on board with the driver of the deposit.

Speaker Change: Great and then if I could just one more Ron on the deposit cost quarter on quarter change any particular.

Speaker Change: I heard your prepared remarks about the indexed deposits, but any particular product that drove the increase I know theres been some questions from some of the larger banks about sweep deposits, but any impact from that or any one category I'd call out on that are driving the cost.

Jim Rhine: And I'll let Jim answer on the sweep side. But yeah, well, on the sweep side, I said you're referring to health care. For us, we don't anticipate that being an issue. We're not a fiduciary. As you know, those Deposit Transaction Accounts for Healthcare-Related Expenses. We don't anticipate that it will be anything material for us going forward. Thank you. And he wasn't a driver in the second quarter either, so no future impact, no current impact.

Ram Shankar: And no, the increase in cost on a quarterly report basis is the pipeline of institutional deposits that we've talked about for the last couple of quarters. So the timing of those came on board with the driver of the deposit cost.

Speaker Change: Yes.

Speaker Change: Increase in costs on a quarter over quarter basis as the pipeline of institutional deposits that we've talked about for the last couple of quarters. So the timing of those coming on board was the driver of the deposit cost and I'll, let Jim answer on the sweep side with.

Speaker Change: Yes.

Speaker Change: On the <unk> side.

Speaker Change: They are referring on health care.

Speaker Change: Fortunately for US, we don't anticipate that being an issue.

Speaker Change: We're not a fiduciary because as you know.

Speaker Change: The positive transaction for health care related expenses.

Speaker Change: Anticipated.

Speaker Change: Anything material for us going forward.

Speaker Change: Perfect. Thank you.

Speaker Change: And it wasn't a driver in the second quarter, either so no future impact stroke heart attack.

Speaker Change: Got it thank you.

Operator: Thank you. Our next question comes from the line of Nathan Race with Piper Sandler. Nathan, your line is now open.

Speaker Change: Thank you. Our next question comes from the line of Nathan race with Piper Sandler Nathan Your line is now open.

Speaker Change: Yeah.

Operator: Yeah, hi guys. Good morning.

Nathan James Race: Yeah, Hi, guys. Good morning, Thanks for taking the questions good morning.

Speaker Change: Ed.

Nathan James Race: Thanks for taking the questions. I was curious just to get an update on what you're seeing across the loan pipeline and just kind of overall loan growth expectations over the next couple quarters. And just curious, based on the pipeline mix, do you expect that to be largely driven by commercial real estate as we saw here in 2Q?

Nathan James Race: Sure I was curious just to get an update in terms of what youre seeing across the loan pipeline.

Speaker Change: Overall loan growth expectations over the next couple of quarters and just curious.

Speaker Change: Just on the pipeline mix do you expect that to be largely driven by commercial real estate as we saw here in <unk>.

Jim Rhine: I'll take that, Nate, thanks. If you look back, the comments we made in the first quarter are the same we would make in the second quarter as to where the CRE balances were coming from. Largely, they were from existing commitments that were being drawn on. We do continue to book business in CRE, multi-family, and industrial, so there remain lots of opportunities there. So, as we talked before, it's less than it was because we're more focused on great current relationships that we can broaden our relationships with and deposits, and other business with.

Speaker Change: I'll take that thanks.

Speaker Change: If you look back where the comments we made in the first quarter. The same we would make in the second quarter. So we're let's see CRE balances were coming from largely they were from existing.

Speaker Change: Commitments that are being drawn on.

Speaker Change: Do continuing to book business, and CRE multifamily and industrial so there are there remains lots of opportunities there. So as we've talked before it's less and less.

Speaker Change: And it was because there were more focus on great current relationships that we can broaden our relationships with deposits and other bus business with.

Jim Rhine: So, that's the case kind of transitionally coming out of the pandemic, where there was all that excess liquidity. But as far as the pipeline goes, we actually see a very strong third quarter. And as you know, we usually only give a look into the next 90 days as we do that. It's a very strong third quarter, and it's coming from across the board. All of us.

Speaker Change: So.

Speaker Change: That's the case kind of transitional it coming out of the pandemic.

Speaker Change: All of that excess liquidity in the system.

Speaker Change: But as far as the pipeline goes we actually see a very.

Speaker Change: Strong third quarter and as you know, we usually only give a look into the next 90 days.

Speaker Change: As we do that it's a very strong third quarter and it's coming from across the board.

Speaker Change: All of our segments.

Jim Rhine: Okay, great, very helpful. And then just going back to Ram's margin guidance, I think for the backup, they're just kind of stable, even if we get a cut at the end of September, just trying to understand maybe how conservative that guidance is, just given that you can be pretty well matched up in terms of your hard and soft index deposits relative to your true floating rate loans in terms of those percentages. And just as you kind of continue to grow loans, that pretty strong clips and use some of the excess equity coming off the bond portfolio to support that growth.

Speaker Change: Okay, Great very helpful. And then just going back to <unk> margin guidance I think for the backup there just kind of stable even if we get a cut at the end of September just trying to understand maybe how conservative is that guidance is just given that you can pretty well matched up in terms of your hard and soft indexed deposits relative to your true floating rate.

Speaker Change: Loans in terms of those percentages and just as you kind of continue to grow loans pretty strong clips and use some of the excess liquidity coming off the bond portfolio to support that growth.

Nathan James Race: Yeah, I mean, it's a complicated question. There are a lot of moving parts, right? The first thing, obviously, the level of DDA, like we answered before. I mean, we've said, you know, it could be 10 billion, it could be nine and a half billion, or it could be 10 and a half billion. So the overall mix of deposits and timing of some institutional deposits coming in can impact our deposit costs. But you know, as I said in my prepared comments, we have, you know, close to 48% of our book that is priced at market rates that will move immediately or pretty quickly after the Fed cuts rates, right?

Speaker Change: Yes, it's a complicated question a lot of moving parts right. The first thing obviously the level of DDA like we answered before I mean, we've said it could be 10 billion nine $5 billion or it could be $10 5 billion. So the overall mix of deposits and the timing of some institutional deposits coming in can impact our deposit cost, but all of them.

Speaker Change: As I said in my prepared comments, we are close to 48% of our book that are priced at market rates that'll move immediately are pretty quickly after the fed cuts rates right and we still have about $1 billion fixed.

Nathan James Race: And we still have about a billion ADA fixed-rate loans that will continue to reprice higher in the next 12 months because they're at, you know, call it 200 basis points below where current market rates are. So that's a positive as well. And then the third positive, obviously, is what's happening in our security book, with about $1.4 billion of cash flows coming due at 254 and getting priced 200, 250 basis points higher. So there is a lot of positive momentum on one side.

Speaker Change: Fixed rate loans that will continue to reprice higher in the next 12 months because they are call. It 200 basis points below where current market rates are so thats a positive as well and then the third positive obviously is what's happening in our securities book with about $1 4 billion of cash flows coming due at $2 54.

Speaker Change: And getting priced.

Speaker Change: 200, 250 basis points higher so a lot of positive momentum on one side and then the other side is just we have 69% or 66% of our loans are variable in nature, 69% of them are tied to <unk>.

Ram Shankar: And then the other side is, you know, we have 69% or 66% of our loans are variable in nature. 69% of them are tied to SOFR or the prime rate. So when that happens, SOFR moves in advance of what the Fed might do, and that might impact loan yields on the other side. So a lot of moving parts, as I'm saying, and obviously, this is true for the next two or three quarters before we layer on the Hartland acquisition.

Speaker Change: So far our prime rates that happened sulfur moves in advance of what the fed might do but that might impact loan yields on the other side a lot of moving parts of this I'm, saying and obviously this is true for the next two or three quarters before we layer on the Heartland acquisition.

Ram Shankar: So I would say, given, you know, I'd stick to my original comments that we expect it to be stable. Again, it'll be dictated by what happens to the mix of deposits, including DDA, and Lowe's Group. And Lowe's Group, yeah. Yeah, I do believe Lowe's will be accretive to your point here.

Speaker Change: I would say given I would stick to my original comments that we expect it to be stable.

Speaker Change: Again, it will be dictated by what happens to mix of deposits, including DDA.

Speaker Change: And loan growth.

Speaker Change: Yes.

Speaker Change: It will be accretive to your point of view.

Speaker Change: Okay.

Ram Shankar: Okay, great. And then you just continue to see kind of good momentum on the institutional, the income, you know, just curiously, again, update in terms of the opportunities you're seeing across those lines, and just kind of any thoughts on just kind of activity levels, and if you can kind of continue to stay in the growth rate that we've seen in the last year or so across institutional. That's another one of my favorite questions. I love our credit quality questions, and I love our institutional growth questions. I'll say a couple of things and let Jim add on if I missed anything.

Speaker Change #120: Okay, Great and then you just continue to see good momentum on the institutional.

Speaker Change #123: Fee income just curious to maybe get an update in terms of the opportunities you're seeing across those lines and just kind of any thoughts on.

Speaker Change: Just kind of activity levels and if you can kind of continue to assume the growth rate that we've seen in the last year or so across institutional.

Unknown Executive: That's another one of my favorite questions. I love our credit quality questions. And I love our institutional growth questions. It's, I'll say a couple things and let Jim add on if I missed anything since the business lines report to him. But we continue to be positioned very well across the board, but in particular, a couple things in AI-based alternatives investment within our Asset Servicing Business are very, very strong. The profile is very strong.

Speaker Change: That's another one of my favorite questions I Love, our credit quality questions that I love, our institutional growth question.

Speaker Change: I'll say a couple of things.

Speaker Change: Jim add on if I Miss anything.

Speaker Change: <unk> report to him but.

Speaker Change: We continue to be positioned very well across the board, but in particular, a couple of things in AI alternative investment.

Speaker Change: Within <unk>.

Speaker Change: Our.

Speaker Change: Asset servicing business.

Unknown Executive: There's a lot of fund creation, a lot of fund raising going on, a lot of growth within some major clients that we have. We continue to see a really strong pipeline there. And, and then a lot of growth within the customer base. So, the profile there continues to be very strong.

Speaker Change: He is very very strong the profile is very strong there's a lot of.

Speaker Change: Fund creation, a lot of fund raising going on a lot of growth within some major clients that we have we.

Unknown Executive: And I think the disruption in the space with our competitors being bought and sold has continued to be very helpful. So that's a really strong business with a strong profile and a great tailwind. Corporate Trust continues to be fantastically strong, and I think the strength and travel and all that has really pushed a lot of activity in the airline business, which is coming on. Our CLO business and such that we are building in that space are, again, really enjoying great tailwinds, having a really good time hiring people in the space, and again, just consolidation and hiring has been really great for us in that space. So we continue to feel good about that. The rest of them are all strong.

Speaker Change: Continue to see a really strong pipeline, there and and then a lot of growth within the customer base. So that that is the profile. There continues to be very strong and I think the disruption.

Speaker Change: In the space with our competitors being bought and sold also has continued to be very helpful. So that's a really.

Speaker Change: Strong business with strong profile and a great tailwind corporate trust continues to be <unk>.

Speaker Change: Fantastically strong.

Speaker Change: And I think the.

Speaker Change: The strength in travel and all that has really pushed a lot of activity in the airline business, which is coming on our CLO business.

Speaker Change: And such that we are building in that space is.

Speaker Change: I can't have real great tailwind sort of a really good time hiring people in the space.

Speaker Change: <unk>.

Speaker Change: And again just consolidation in hiring has been really great for us in that space. So we continue to feel good about that and the rest of them are all strong. Those are those are almost real momentum outside its profile our wealth business. Interestingly also hasnt really great profile right now the sales activity of new generation of assets.

Unknown Executive: Those are some with real momentum and outsized profiles. Our wealth business, interestingly, also has a really great profile right now. The sales activity and new generation of assets under management there have been very strong, and so that's nicely up quarter over quarter and year over year. Anything you might add, Tim?

Speaker Change: Under management there has been.

Speaker Change: Ben.

Speaker Change: Strong and and so that's nicely up.

Speaker Change #105: Quarter over quarter and year over year anything you might add the only thing I would add.

Jim Rhine: No, the only thing I would add is, as you know, the corporate trust business is also a great contributor to our deposit base, and we have the ability to move. If they balloon, we can move it off the balance sheet. We have the ability to keep on balance sheet. We've really built that out nicely, and we're continuing to invest. So the outlook for those businesses continues to remain very strong, and healthcare continues. Like I said, all the businesses are strong, and profiles for all of them are strong, but there's some real momentum in corporate trust and AI within the whole set.

Speaker Change: As you know the corporate trust business is also.

Speaker Change: Great contributor to our deposit base.

Speaker Change: We have the ability to move.

Speaker Change: Yes.

Jim Rhine: And we can move it off balance sheet, we have the ability on balance sheet.

Speaker Change: Really built that out nicely and we're continuing to invest so.

Speaker Change: Outlook for those businesses continues very strong and healthcare continued like I said all of the business Theres a strong profile for all of them are strong, but theres some real momentum in corporate trust and within this the whole set.

Nathan James Race: Okay, very helpful. Thank you for that. If I could just ask one more, just in terms of thinking about expenses next year, you know, it looks like you guys aren't planning to convert the systems until the fourth quarter of next year. So just curious, you know, to what extent or what degree of cost savings you guys think you can realize assuming you close the deal early next year, ahead of the cost, I'm sorry, ahead of the conversion later in the year.

Speaker Change #127: Okay very helpful. Thank you for that and if I could just ask.

Speaker Change #117: One more just in terms of thinking about expenses next year.

Speaker Change: It looks like you guys aren't planning to convert the systems until the fourth quarter of <unk>.

Speaker Change: Next year, so just curious.

Speaker Change #112: To what extent or what degree of cost saves you guys. When you can.

Speaker Change: Realize assuming you close the deal early next year.

Speaker Change: The cost.

Speaker Change: I'm sorry go ahead of the conversion later in the year.

Unknown Executive: Well, I mean, we'll, as they come in and we execute against them, we'll report on them. It's probably premature to tell you how and when, but it's too early, really, to report on that, but we intend, obviously, to segregate and report on those synergies and savings as they come through every quarter.

Speaker Change #114: Well I mean, we will.

Speaker Change: As they come in and we execute against them, we'll report on them.

Speaker Change #139: It's probably premature to tell.

Speaker Change #126: Tell you how win.

Speaker Change #126: It's too early really to report on that but we do intend obviously too.

Speaker Change: Segregate report on those.

Speaker Change: Synergies and savings as it come through every quarter.

Ram Shankar: Yeah, and nothing's changed from our announcement. If you go back, we expected, you know, based on first quarter close and a fourth quarter conversion, that we would get 40% of that 27.5% cost saved in the first, in the 2025 timeframe, and then everything else in 2026 and beyond. So no change from that perspective as of now. And you'll see, as I said, that the projections for it all haven't changed, but you'll see it come through as it comes through.

Speaker Change: Nothing's changed from our announcement if you go back we expect that based on first quarter closed in the fourth quarter conversion that we would get 40% of that 25% cost saves in the first.

Speaker Change: In the 2025 time frame and then everything else in 2026 and beyond so no change from that perspective now.

Speaker Change: And you'll see as I said.

Speaker Change: Projections for all of the change, but youll see it come through as it comes through.

Speaker Change: Yeah.

Nathan James Race: Okay, great. I appreciate it. Thanks, guys. [inaudible]

Speaker Change #113: Okay, Great I appreciate all the color thanks, guys.

Nick: Thanks, Nick.

Operator: Thank you. Our next question comes from the line of John Radice with JANI. John, your line is now open.

Speaker Change #108: Thank you. Our next question comes from the line of John <unk> with Janney John Your line is now open.

Nick: Okay.

John: Good morning, everybody.

Operator: Just to follow up, Ron, maybe on fees, I guess the brokerage line item, if we start to see some Fed cuts, can you hold that level, or does that start to decline a little bit?

Speaker Change: Or just just a follow up.

Speaker Change: Maybe one on fees.

John: I guess the brokerage line item, if we start to see some fed cuts can you hold that level or does that start to decline a little bit.

John Radice: No, that's no, it takes a lot of cuts for that to be impacted on the negative side, you know, have to be 300 plus 400 basis points of cuts before it impacts the 12B1 money market revenue share. So there's no risk of that. To Jim's earlier point, we're still seeing opportunities to add off balance sheet and maybe even generate some,

Speaker Change: No.

Speaker Change #109: No. It takes a lot of fed cuts for that to be impacted on the negative side.

Jim: You don't have to be 300, plus 400 basis points of cuts before it impacts the <unk> one money market revenue share. So there's no risk of that to Jim's earlier point, we're still seeing opportunities to add off balance sheet and may be you might generate some but I would not expect any near term impacts because of revenue sharing going that way.

Unknown Executive: until the Fed cuts rates fairly dramatically.

Speaker Change #106: Until the fed cuts fairly dramatically and quite frankly, I think where we see it as more if rates come down activity will go up so there will be more activity. So on the margin anyway is that would hit over time, we'd see more we've seen more volume also.

Speaker Change #106: Sure.

John Radice: Okay, okay. Makes sense, Mariner. Thank you. And then just one other on fees, the bank card fees, you know, you're 21 to 22 million now and just talking about your previous comments about strong trends and stuff, and so you feel, you know, that's up from, you know, 18 to 19 million a quarter last year. So this sort of new level of 21 to 22 million seems appropriate going forward.

Unknown Executive: Okay. Okay makes sense Mariner. Thank you and then just one.

Speaker Change #111: One other one feeds the bankcard fees you know your 21 to 22 million now and just talking your previous comments about strong trends and stuff.

Speaker Change #132: So you feel that's up from $18 million to $19 million a quarter last year. So this sort of new level of 21% to 22 million seems appropriate going forward.

Ram Shankar: Yeah, one of the biggest drivers. So obviously, purchase volumes have even organically grown up nicely, right? We used to be at three and a half billion dollars in purchase volumes every quarter. A lot of it's driven by healthcare.

Speaker Change #116: Yes, one of the biggest drivers so obviously purchase volumes, even organically grown up nicely right. We used to be at $3 5 billion of purchase volumes every quarter a lot of it driven by healthcare and we have a lot of momentum as you've heard from our fee income lines on commercial where purchase volume is growing strongly and the biggest catalyst.

Speaker Change #111: Second quarter.

Speaker Change #111: 100 and call it $15 million of.

Speaker Change #101: Co branded card balances that we acquired so that new business generated about gross $70 million of purchase volumes.

Ram Shankar: Now we have a lot of momentum, as you know, our fee income lines on commercial, where purchase volume is growing strongly. And the biggest catalyst in the second quarter is the hundred and call it $15 million of co-branded car balances that we acquired. So that new business generated about, you know, gross $70 million in purchase volumes, fees of net of interchange or net interchange fees of about half a million dollars.

Speaker Change: Net of interchange net interchange fees of about half a million dollars. So that's part of the organic and inorganic growth drivers for us, but we feel pretty good at the higher level. It can go up and down from quarter to quarter based on timing of.

Speaker Change #101: Incentives from the network or other things, but generally we feel like.

Ram Shankar: So that's part of the organic and inorganic growth drivers for us, but we feel pretty good at the higher level. It can go up and down from quarter to quarter based on the timing of, you know, incentives from the network or other things. But generally, we feel like the momentum is positive.

Speaker Change #101: The momentum is positive we also had a couple of large new relationships.

Unknown Executive: The momentum is positive. We also had a couple of large new relationships on the institutional side that had cart relationships that are really starting to drive some big volume there. So I would say it's up from here, not neutral. You know what I mean? The trends are upward sloping.

Speaker Change #101: On the institutional side.

Speaker Change #101: Part relationships that are really starting to drive.

Speaker Change: The volume there.

Speaker Change #130: So I would say.

Speaker Change #102: It's up from here neutral.

Speaker Change #102: The trends the trends are.

Speaker Change: Upward sloping.

John Radice: Okay, thanks guys. Thank you.

Speaker Change #110: Okay. Thanks, guys.

Speaker Change #110: Okay.

Jeff: Thanks, Jeff.

Speaker Change #110: Thank you.

Operator: Before our next question, a reminder, if you would like to ask a question, press star one on your telephone keypad. Our next question comes from the line of Timur Braziler with Wells Fargo. Timur, your line is now open.

Speaker Change #104: Our next question reminder, if you would like to ask a question press star one on your telephone keypad.

Speaker Change #128: Our next question comes from the line of Tim Margaret Seller with Wells Fargo Kumar. Your line is now open.

Speaker Change #115: Hey, good morning.

Timur Braziler: I wanted to follow up just on the margin outlook for 3Q as it pertains to the bond book. It seems, at least, like much of the bond growth occurred later in the quarter, and the amount of repricing was elevated in 2Q compared to what's coming online over the next four quarters. I'm just wondering how much of that repricing took place in the back end of the quarter and if that's not more of a tailwind as we go into 3Q for margin.

Speaker Change #115: Alright.

Speaker Change #122: Wanted to I was.

Speaker Change #119: Wanted to follow up just on the margin outlook for <unk> as it pertains to the bond book.

Speaker Change #118: It seems at least like much of the bond growth.

Speaker Change: Occurred later in the quarter.

Speaker Change: And the amount of repricing was elevated in <unk>.

Speaker Change #138: What's coming online over the next four quarters.

Speaker Change #124: I'm just wondering how much of that repricing took place in the back end of the quarter and that's not me.

Speaker Change: More of a tailwind as we go into <unk> for margin.

Speaker Change: No.

Speaker Change: Yes.

Ram Shankar: and balance increase that you're seeing as we footnote it on one of our pages. Time to time, especially at month end, as we described earlier, there's a lot of collateral needs for trust deposits and institutional type deposits. So we end up buying those. So those may be inflating what you're looking at.

Speaker Change: And.

Speaker Change: Balance increase that you are seeing as we footnoted in one of our pages.

Speaker Change #125: Time to time, especially that month and as we described earlier theres a lot of collateral needs for trust deposits and institutional deposit. So we ended up buying those so those may be inflating what youre looking at but generally across the three months of the quarter were always looking at every quarter or two.

Ram Shankar: But generally, across the three months and a quarter, we're always looking at every quarter to see whether we want to reinvest based on our loan to deposit ratio pipeline and all that. So I would not expect a tailwind because of the late quarter purchases. I mean, again, this is just to satisfy collateral needs over the last two days of the quarter and the first two days of the following or last two days of the month and the following two days. So there's no tailwind to be expected in the third quarter.

Speaker Change: Whether we want to reinvest based on our longer deposit ratio pipeline and all that so I would not expect a tailwind because of the late quarter purchases. I mean again. This is just to satisfy collateral needs over the last few days of the quarter and the first students are factored into the month of falling two days. So theres no tailwind we expected in the third quarter.

Speaker Change: From that.

Timur Braziler: Okay, great. And then maybe we can follow up on the Heartland deal. I'm just wondering, you know, the fact that you're essentially acquiring 10 smaller institutions versus one larger one, is that an opportunity as those are kind of consolidated together and brought under one general operating model? Or is that a near-term risk as that consolidation kind of maybe offsets some of the plan benefits, at least in the near term of the deal closing? Oh, that's great.

Speaker Change: Okay, Great and then maybe a follow up on the Heartland deal.

Speaker Change #121: I'm just wondering the fact that you're essentially acquiring 10 smaller institutions versus one larger one is that an opportunity.

Speaker Change #136: As those are kind of consolidated together and brought under one <unk>.

Speaker Change: General.

Timur Braziler: Operating model or is that a near term risk as that consolidation kind of.

Speaker Change: Maybe offset some of the planned benefits at least in the near term of the deal closing.

Unknown Executive: That's a great question. And one of the things that really excited us about executing this transaction was that they started a journey two years ago, basically to set themselves up to look like us over the next, you know, five and 10 years. And this acquisition just accelerates all that work. So they've done, I said, I think, early on in one of our calls, you know, they planted the seeds and tilled the soil, and we get the harvest.

Speaker Change #129: That's a great question and it was really one of the exciting things about executing this transaction really excited us is that they.

Speaker Change: Started a journey two years ago basically to set themselves up to look like us.

Speaker Change: And the next.

Speaker Change: Five and 10 years.

Speaker Change: And.

Speaker Change: This acquisition just accelerates all that work so they've done I've said I think early on in one of our calls.

Speaker Change: They planted the seeds in.

Speaker Change: Till the soil and we get to harvest so they've done all the hard work that's consolidated the systems.

Unknown Executive: So they've done all the hard work; they've consolidated the system. And, you know, we have to come in and sort of layer on all the other things that we do. And so I guess I would say not a lot of risk to that, really just more opportunity to leverage the work that they've already done. So we're pretty excited about it. We get to kind of come in and, like I said, leverage the work they've done. So I don't see any risk.

Speaker Change: And.

Unknown Executive: They're really all

Speaker Change #133: We get to come in and sort of layer in all the all the things that we do.

Speaker Change #103: So I guess I would say not a lot of risks that really more opportunity to leverage the work that they've already done. So we're pretty excited about it we can just kind of come in.

Speaker Change #103: That leverage the work they've done so don't see any risks there really all opportunity.

Timur Braziler: Great. Thanks for that, Colin Mariner.

Speaker Change: Great Thanks for that color.

Speaker Change #103: Okay.

Steve: Thanks, Steve.

Operator: There are no questions registered at this time, so I will pass the call back over to the management team for any closing remarks.

Speaker Change: There are no questions registered at this time, so I will pass the call back over to the management team for any closing remarks.

Unknown Executive: Thank you and thank everyone for joining us today. Again, you can always follow up with Investor Relations at 816-860-7106. Thanks for your interest in UMB, and have a great day.

Speaker Change #135: Thank you and thanks, everyone for joining US today again, you can always follow up with Investor Relations at 816860710.

Speaker Change: Thanks for your interest in <unk> and have a great day.

Operator: That concludes today's call. Thank you for your participation. You may now disconnect your line.

Speaker Change #137: That concludes today's call. Thank you for your participation you may now disconnect your lines.